Some £36.8m of tax will have to be paid on a superyacht following its deregistration for VAT here, a tribunal has ruled.
Motor yacht MY Amadea was bought from a firm of German shipbuilders in March 2017 at a price of €217m (£184m).
It was seized in Fiji in May last year at the request of US authorities investigating its alleged links to a sanctioned Russian oligarch. It subsequently relocated to San Diego, where it now flies the US flag.
Nereo Management Limited was incorporated in the Cayman Islands as a special purpose vehicle to acquire the 106m-long yacht. The company became registered for VAT in the Isle of Man with effect from March 14 2017, having described itself as a worldwide yacht charter business in its application.
MY Amadea was imported by Nereo into the Isle of Man on March 28 and Nereo accounted for import VAT of some £36.8m. It reclaimed input VAT in the same amount on its first VAT return.
Then on November 24 that year, while the yacht was outside the EU in Montenegro, Nereo applied to deregister for VAT.
Isle of Manx Customs and Excise raised an assessment in May 2021, seeking payment of output VAT to the tune of £50.6m plus an penalty of just under £7.6m.
But Nereo argued no VAT was owed as the yacht had been outside the Isle of Man at the time of deregistration. It took its case to the VAT and duties tribunal.
VAT tribunal chairman Judge Jonathan Cannan has now ruled that he is satisfied that the place of the deemed supply of the yacht was the Isle of Man, and Nereo was required to account for the output tax.
He said the assessment was made in time but its value should be reduced to reflect the market value of the boat at the time of deregistration. He also ruled that the penalty imposed was valid but its value too should be reduced.
It was not surprising that the yacht might be outside the EU at the time trading ceased because it was being used as part of a worldwide charter business, he said. Judge Cannan said VAT liability couldn’t depend on where the yacht happened to be at the time the business ceased.
The island’s policy on tax refunds for superyachts and corporate jets imported into the EU via the Isle of Man hit the headlines in 2017 following the release of the Paradise Papers, a leak of seven million documents stolen from offices of global law firm Appleby.
A review carried out by UK Treasury, brought in at the request of the Manx government, concluded the island had robust procedures in place and found no specific cases of tax abuse. But it called on post-registration checks to be carried out to assess whether an aircraft or yacht was genuinely used for business use and so entitled the owner to recover VAT paid on import.
Nereo had applied to deregister for VAT in December 2017 on the basis that it had ceased to trade. It had encountered extensive technical difficulties with the MY Amadea’s engine and a long list of warranty problems.
In July the following year a VAT inspection was carried out on Nereo as part of the UK’s general review into the Isle of Man’s practices and procedures in relation to VAT on imported aircraft and yachts.
Following the inspection, a Customs officer notified the company that an assessment would be raised shortly for some £36,857,773 plus interest and penalties. Nereo’s representatives argued that no VAT was due as the yacht had been exported prior to deregistration.
But then in May 2021, Isle of Man Customs and Excise issued an assessment for the larger sum of £50,605,000, plus interest and penalties. This was based on the price of €290 at which the MY Amadea had been advertised for sale at the Monaco Yacht show in 2019.
Judge Cannan said he did not consider it unreasonable for the authorities to rely on this asking price as evidence of the yacht’s value in November 2017 but added the best evidence available to him was the €217m purchase price in March 2017, and said the assessment should be reduced accordingly.